Allow me to introduce a new concept. I call it the Voluntary Graduated Financial Service Tax. It is one of the three taxes we pay on our savings.

Most readers are well aware of the other two taxes on our savings, both of which are involuntary. The first is the federal income tax on the return earned by our investments. We currently pay as little as 15 percent on dividends and capital gains from common stocks. But we can pay as much as 35 percent on interest income.

Most people hate this tax. So they will go to great lengths to defer, reduce, or avoid it. At this time of year our friends in financial services regale us with tax-reducing opportunities, such as "harvesting losses" to offset our realized gains, tax-efficient wrap accounts for the future, and tax-free bonds for the truly tax-phobic.

The other involuntary tax on our investment returns is inflation. The whole point of investing is to accumulate purchasing power for the future. If we save $100 today and it doubles in value to $200, we won't be pleased if prices double in the meantime. With a long-term inflation rate of 3.1 percent, money saved for 40 years will lose 70.5 percent of its purchasing power.

That's a really big tax.

Sadly, history shows that both political parties are worthless when it comes to protecting us from the effects of these two taxes. Democrats make promises that can't be fulfilled and raise taxes whenever possible. Republicans make promises that can't be fulfilled and borrow or print money whenever possible. Both parties promote inflation.

Fortunately, we can do something about the Voluntary Graduated Financial Services Tax. If we choose expensive financial services, we can pay at a high rate. If we choose to pay less for financial services, we can pay at a lower rate.

How big or small can this tax be?

Well, let's face it--- nothing is worse than inflation. The Voluntary Graduated Financial Services Tax, however, can be a lot worse than the highest income tax rate. By my calculation, accepting an annual expense ratio of 1.39 percent on an equity mutual fund is the equivalent of accepting a 40 percent tax rate from the financial services industry. The amount you accumulate in 40 years will be only 60 percent of what you could accumulate if there were no financial service expense.

Suppose, for instance, that you could invest $1,000 in large common stocks, earning the 10.7 percent annualized return found by Ibbotson Associates. Over 40 years your $1,000 would grow to $58,332. Think of that amount as the zero percent bracket for the Voluntary Graduated Financial Services Tax.

Invest in a low cost index fund at 0.20 percent a year and your accumulation will be reduced to $54,261. This implies a reduction in growth of a bit over $4,000. That's the equivalent of a 7 percent tax rate.

Invest in a low cost managed equity fund with an expense ratio of 0.79 percent and your accumulation will be reduced to $45,259. That's a growth reduction of over $13,000, or 23 percent.

Invest in an expensive managed equity fund at 1.39 percent and your accumulation will be cut to $35,188. That's a growth reduction of 40 percent.

Invest in a still more expensive managed fund at 1.79 percent annual expense (as many 403(b) plan participants do with variable annuities) and your accumulation will be cut to $30,388, a growth reduction of 49 percent.

Your Voluntary Graduated Financial Services Tax, in other words, can vary from less than 10 percent to nearly 50 percent. Since it is voluntary, you get to pick the rate.

Those on the sell side will be quick to tell us that superior marketing and management will get us superior returns that justify the additional cost.

That, friend, is fecal matter dropped from a large male grazing animal.

In the ten years ending October 31, the average annualized return of 1,372 domestic equity funds with 10-year track records was 8.63 percent, some 1.79 percent less than the S&P 500 Index. They trailed the index by a bit more than their average annual expense ratio of 1.34 percent, indicating that higher portfolio turnover also reduced performance.

My suggestion: do some "tax planning" for 2004 and beyond: Reduce your Voluntary Graduated Financial Services tax rate.